Credit Cards and Debt

2. Marsha and Michael have a combined monthly net income of $3,500. Their fixed monthly expenses consist of $675 for rent. They also have an outstanding student loan balance of $6,000 and a balance of $1,000 for the stereo they bought last month. How much more debt can they take on and still be within a safe debt load?

$1400.00 $3,500 x 12 = $42,000 $42,000 x 20% = $8,400 $8,400 - $6,000 - $1,000 = $1,400

1. David has a monthly net income of $1,360. His fixed monthly expenses consist of a rent payment of $450. He is paying off a student loan of $116 per month. David would like to buy a new television set using a credit card. What is the largest monthly payment David can afford for the television set so that his credit card payments and student loan keep him within a safe debt load of 10%?

$20.00 $1,360 x 10% = $136 $136 - $116 = $20

<600

High risk to lenders; you could get higher interest rates or get turned down for a loan or credit application

past-due balance:

No finance charge is added if the full payment is received within the grace period. If it is not received, a finance charge for the unpaid amount is added on to your next bill.

3. Juanita has a monthly net income of $2,500. Her fixed monthly expenses consist of $500 for rent. She also pays a car insurance premium of $68 and a car payment of $167. Are these payments within Juanita's safe debt load?

Yes $2,500 x 10% = $250 $250-$167-$68=$15

what to do if you're denied credit

if you think the reasons for the denial are valid: • Ask the creditor if you can provide additional information or arrange alternate credit terms. • Apply to another creditor whose standards may be different. • Do the things you need to do to improve your creditworthiness (pay bills on time, increase income, reduce spending, obtain a secured card, etc.) and then reapply. if you are not sure whether the reason for the denial is valid: • Ask the creditor to explain why you were denied. • Review your credit history. • If you find your credit history has errors, take steps to correct the errors. if you believe the reason for the denial is invalid and that the creditor has discriminated against you: • Notify the federal enforcement agency whose name you were given by the creditor. • If you can afford it, hire an attorney to file suit against the creditor. If the court determines the creditor did discriminate, the creditor will be required to pay you actual damages plus punitive damages.

refunds of credit balances

prompt credit for payment -A card issuer must credit your account on the day the issuer receives your payment, unless the payment is not made according to the creditor's requirements. refunds of credit balances -When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or receiving a refund. unauthorized charges -If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges. -If your card is used before you report it lost, you are liable for $0 if reported within two business days. After that, you're liable for no more than $50.00. disputes about merchandise or services -In some circumstances, you have the right to withhold payment for unsatisfactory merchandise or services.

credit card do's and don'ts

shop around • Look for a credit card to suit your needs read and understand the contract • Read the contract carefully. • Don't rush into signing anything. • Once a contract is signed, get a copy of it. • Know the penalties for missed payments. know your cost • Figure out total price when paying with credit. • Make the largest payments possible. • Know the penalties for missed payments. • Buy on installment credit only after you have evaluated all other possibilities. • Don't be misled into thinking small payments will be easy.

What makes up your credit score?

• 35% -- Payment History - Late payments, bankruptcies, and other negative items hurt your credit score, but a solid record of on-time payments helps your score. • 30% -- How Much You Owe - Credit scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The closer you are to your credit limit, the lower your score will be. • 15% -- Length of Credit History - A longer history of using credit responsibly will increase your score. • 10% -- New Credit - If you recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. • 10% --Other Factors

What happens if we pay our bills late or we bounce a check? What about not paying off credit card bills?

- Increased interest payments that can cause us to fall even deeper into debt. -Impact our credit score. +Good debt increases our credit score +Bad debt decreases our credit score -DEBT can SNOWBALL very easily if we spend more than we have and only pay the minimum amount due on our bills.

A good credit score can help you:

- Lower your interest rates. - Speed up credit approvals. -Reduce deposits required by utilities. - Get approved for apartments. - Obtain better credit cards, car loans, and mortgage offers.

How do people get into debt?

- NEED TO ASK 3 QUESTIONS BEFORE MAKING ANY SPENDING DECISION 1) Can I afford it? 2) How will I pay for it? 3) What will the consequences of my purchase be?

debt

-When people owe more money than they have -Causes: One way is to make impulsive decisions with money, whether for a WANT or NEED.

good debt

-when credit is used to purchase something that is needed but may be difficult to pay for in cash. • Loan for college • Loan to buy a car • Mortgage to buy a house -GOOD DEBT can help build credit history and show lenders that you are financially responsible. • Making good choices with our money can help us maximize savings, build credit and minimize bad debt.

credit rating scale

BAD: 300-640 FAIR: 640-680 GOOD: 680-720 BEST: 720-850

monthly payments should NOT exceed 10% of your monthly net income

If your take-home pay is $400 a month: $400 x 10% = $40 • Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans, and credit cards.

Fair credit billing act (1974)

Its purpose is to protect consumers from unfair billing practices

> 700

Low risk to lenders; demonstrates good financial health

average daily balance:

You pay interest on the average balance owed during the billing cycle. The creditor figures the balance in your account on each day of the billing cycle, then adds together these amounts and divides by the number of days in the billing cycle.

adjusted balance:

You pay interest on the opening balance after subtracting the payment or returns made during the month.

previous balance:

You pay interest on the opening balance, regardless of payments made during the month.

applying for a credit card

costs: • Annual Percentage Rate (APR) • Grace period • Annual fees • Transaction fees • Balancing computation method for the finance charge features: • Credit limit • How widely the card is accepted • What services and features are available

Examples of billing errors:

• Charges not actually made by the consumer • Charges in the wrong amount. • Charges for goods or services not received by the consumer • Charges for goods not delivered as agreed • Charges for goods that were damaged on delivery • Failures to properly reflect payments or credits to an account • Calculation errors • Charges that the consumer wants clarified or requests proof of • Statements mailed to the wrong address • Significantly not as described product/goods

never borrow more than 20% of your yearly net income

• If your net income (money after taxes) is $400 a month, then your net income in one year is: 12 x $400 = $4,800 • Calculate 20% of your annual net income to find your safe debt load. $4,800 x 20% = $960 • Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should.

How to boost your score

• Pay your bills on time. - Late payments or defaults can really hurt your score. • Keep balances low on credit cards. - High debt levels can hurt your score. • Apply for and open new credit accounts only when you need them. - The most important way to improve your score in this area is to pay down debt. • Check your credit report regularly for accuracy, and contact the creditor and credit reporting agency to correct any errors. • If you have missed payments, get current and stay current. - The longer you pay your bills on time, the better your score.